Hotels across the islands are expected to make a staggering net loss of €26 million this year due mainly to a decline in arrivals and in tourist expenditure.

This is set to wipe out more than 37 per cent of the hotels' gross operating profits. And, against this backdrop of increasing costs and losses and declining revenues, hotels are expected to pay out about €8 million less in wages.

Raphael Aloisio, from Deloitte Malta, commissioned by the Malta Hotels and Restaurants Association to prepare a study to demonstrate that tourism is key to Malta's economic recovery, said investing in tourism was good for the government, the workers and the country.

Examining the report's key finding, Mr Aloisio said that after two successive years of positive growth, tourist guest nights were set to fall by close to 10 per cent this year, making it the poorest performance in the past seven years.

The drop in arrivals and the shorter average length of stay were the main factors contributing to the decrease in guest nights. As a result, there was a drastic cut in average tourist expenditure, which is expected to slump by more than €80 million this year.

This decrease in tourist expenditure will result in a drop of over €10 million in revenue for the government from VAT, national insurance and income tax.

Mr Aloisio said lower available seat capacity, which in the first eight months of the year amounted to 148,000 seats, resulted in more than 185,000 fewer passengers. More than 51,000 seats were lost on chartered flights, including the cancellation of previously successful routes.

Mr Aloisio said government revenue generated from tourist expenditure in 2008 was estimated at over €126 million, equivalent to nearly €100 per arrival or €11 per guest night.

Addressing the MHRA's annual general meeting, Tourism Parliamentary Secretary Mario de Marco said the government was working on increasing the number of airlines linking Malta to Germany and France, the markets that saw the steepest drop in tourist arrivals this year.

He said talks were also advanced on the operation of more services between Milan and Malta.

He said hotels were benefiting from the operation of low-cost airlines, on which the government was spending millions of euros.

A scheme launched by the Malta Tourism Authority to finance up to 50 per cent of hotels' investment in overseas marketing was not taken up by many, with only 10 hotels from 1,370 properties going for it.

Turning to the issue of a lower VAT on tourism services, Dr de Marco said the government had not yet ruled out the possibility. However, the government could not be expected to "forgo a source of revenue and increase its expenditure and investment".

With regard to timeshare representatives harassing tourists, Dr de Marco said an amicable solution was being sought. Enforcement action against those who persistently failed to comply with the required standards was being stepped up.

"We have engaged timeshare operators to come up with proposals to control and limit their outdoor activities, failing which we will have no option but to go down the route chosen by other destinations, namely that of outlawing (timeshare representatives) from the streets. I am confident an acceptable solution will be found," he said.

Although the year was nearing its end, Dr de Marco warned things could get worse before they got better in tourism. Still, the government was committed to intensifying its efforts in the coming months for the industry to emerge stronger.

Outgoing MHRA president Kevin DeCesare, who will be succeeded by George Micallef, again proposed the idea of a super minister for tourism but this time said there should be a minister and two parliamentary secretaries, one for the product and the other focusing on marketing.

"Malta's secret weapon was its heritage sites, which could not be found anywhere else. When you think of Egypt, you think of the Pyramids, with France you envisage Louvre or the Eiffel Tower. But when you think of Malta, what crops up," he asked, highlighting the need to go beyond marketing just the sun, the sea and nightlife.

"Tourists can surely admire our lovely cranes. Malta does not really represent anything in people's minds. This is why the ill-fated branding exercise must be revisited."